As A Home Equity Loan?
Q: Does that get affected if we do the refinancing with the second loan as a home equity loan?
A: Sounds like a reasonable plan. Any "catch" would be in the interest rate, since you seem to have asked the other common questions. Ask about loan servicing and escrow terms -- to whom will you make your monthly payments, and who will be responsible for maintaining the records, escrow account, etc? How will your escrow payments be determined, so you aren't forced to keep excess money in a non-interest-bearing escrow account? If a local company services the loan, that's a bonus. If the loan servicing cannot be sold without your permission (which does not affect the broker's ability to resell the loan itself, a common practice), that's a bonus. "Second mortgage" and "home equity loan" are 2 names for the same thing. As long as the 2 loans are for less than the value of your house, they are tax deductible (check the IRS instructions/pubs for details).